Credit-union scandal taints Japanese lite

A familiar sight returned with spring to central Tokyo this week: public prosecutors raiding a business and bundling boxes filled with confiscated account documents into a waiting van.

That the company searched, EIE International, was eviscerated by the collapse of Japan's "bubble economy" in the late 1980s, and that many powerful figures now appear trapped in its coils, would seem to occasion further dj vu. However, the scandal, which started last December with a highly unusual bail-out of two bankrupt Tokyo credit unions, is rapidly tainting some of the most august pillars of the establishment.

In the eye of the storm is Harunori Takahashi, the head of EIE, who hails from old samurai stock and is the product of the prestigious Keio private- education system.

During the bubble years, Mr Takahashi became the biggest foreign investor in Australia and acquired a necklace of luxury hotels and resort interests, from Tahiti to the Beverly Wilshire in California and the Regent in Manhattan, New York. A luxury floating hotel was towed by EIE from the Great Barrier Reef to Ho Chi Minh City in Vietnam.

The criminal investigation now under way concerns the tail-end of Mr Takahashi's spectacular career of gigantic and ultimately doomed speculation throughout Asia and the Pacific. In 1985 he took over the Tokyo Kyowa credit union and proceeded to milk it for large loans to himself and companies within his EIE group. His close associate, Shinsuke Suzuki, headed a similar credit union in Tokyo called Anzen (meaning "safety"), which also provided large loans to EIE and had EIE executives on its board.

Both credit unions engaged in questionable banking practices. Large loans and high-yielding deposits were made to favoured clients, especially those politically well-connected. Toshio Yamaguchi, a former labour minister, has already resigned his senior post in Japan's new opposition party after it was revealed that the two credit unions lent 4.05bn yen (£26m) to golf courses and a public-relations organisation run by his relatives. Mr Yamaguchi was also involved with Mr Takahashi in share speculation and in a failed project to build an international university in the suburbs of Washington.

A former Defence Agency director and noted right-winger is said to have benefited similarly from Mr Takahashi's friendship and largess, though the failed entrepreneur was politically neutral in his clientele: the main support group of the Socialist Prime Minister, Tomiichi Murayama, also had a large amount on deposit at Tokyo Kyowa.

The scandal has also implicated the powerful state bureaucracy, which had hitherto always held its nose in public at the sewer of money passing between politicians and the private sector.

The most senior civil servant in the Finance Ministry, Jiro Saito, is under pressure to resign after disclosures that his subordinates were wined, dined and invited to play golf by Mr Takahashi. On Monday the head of the Tokyo Customs House, part of the Finance Ministry, was sacked for having taken a free trip to Hong Kong aboard one of Mr Takahashi's private jets.

When the two small credit unions were found to be bankrupt in December, they were bailed out at the taxpayers' expense on the advice of the then governor of the Bank of Japan, Yasushi Mieno. Later it emerged that Mr Mieno's second son works for the Long Term Credit Bank (LTCB), Mr Takahashi's main financier, which had been pouring money into Tokyo Kyowa.

Evidently the LTCB unofficially continued bankrolling Mr Takahashi and EIE after publicly cutting off further credit in 1993. By that stage, the LTCB claims, it was owed 190bn yen (£1.23bn) from Mr Takahashi's spending sprees.

Bungo Ishizaki, a former EIE strategist, claimed that Mr Takahashi invested in European art with the help of a retired French prostitute. "She had grown too old to be a hooker, so she decided to become a freelance art dealer. I'd ask her to draw up a valuation certificate for, say, $10m, and then the bankers would come and look at the painting," he said. "The bankers didn't know a Czanne from a Monet but they'd nod and say, yes, this is worth $10m, and we'll lend you $8m against it ... ''